Welcome to Common Mistakes - a blog for my take on events and the world. Read and comment at your pleasure.

Friday, October 31, 2008

The Coming Obama Bounce - Too Late to Buy In?

I don't know whether you, like me, expect the markets to rise on November 5th if Obama handily wins the election the night before. But I wouldn't be surprised. The only question is whether we've already seen the anticipatory rise this week - of whether there's more to come.

Why would the markets rise? Because, as Paul Krugman argues today, with consumers no longer spending and the economy spiriling down into recession, the only way we're going to get out of this negative pull on the economy is with a massive dose of government spending targeted at real investments (like local infrastructure, education, healthcare, and alternative energy) - and the only candidate offering that program is Obama.

One can be fairly hopeful, however, that when Obama says he's going to spend...with a Democratic congress at his back, he's going to find a way to do it. With that kind of momentum, we could be out of the recession by middle of 2009, rather than end of 2010, as everyone thought a few weeks ago.

But even more important than getting out of the Recession is HOW we get out of it, and what kind of spending we do. After the bursting of the Clinton tech bubble, we see now that Bush revived the economy with a financing bubble, by deregulating industries and cutting interest rates and taxes. When the finance bubble finally crashed, it took down not just a sector, but potentially the entire world economy. Without steady hands like Bernanke and Gordon Brown leading the way, we really may have ended with another global Depression. We're talking about a meltdown the likes of which the world has never seen before.

Fortunately, we had people able to learn from history, and we mustered the right medicine to restore liquidity to the market. Now we just have to deal with the disaster the past two months will be to the economy: a severe recession, but not nearly as bad as it could have been.

But how will we get out of the disaster? Here's the danger - if we get out of it with another finance bubble, as McCain seems to want to do - by handing out money to rich people and leaving our country to fend for itself - when that bubble finally bursts, there may be no stopping it. The meltdown next time may be brutish, swift, and final.

But if we get out of this disaster by investing in our country, by actually producing stuff again - things like new energy sources to run our cars, smart people who can compete with Indian programmers, Belarussian designers and Chinese attorneys, affordable cures and medicines, efficient roads power delivery and transportation, and other products the world will want and will keep our economy competitive - then the next downturn, when it comes, will be mild, indeed.

About Me

Martin Schecter, author of cincritic.com, is a former movie critic for the Arizona Wildcat and book reviewer for the Philadelphia Inquirer. He attended the NYU Cinema Studies program and has an MFA from the University of Arizona. He is also the former Executive Producer of the movie-review website, On2Movies.